In response to The Committee's invitation to take part in the discussion of the recent spate of power outages hampering the Western Cape, the following document has been created, illustrating the various factors at play in Western Cape energy and more specifically electricity environment.

Since November 2005, the Western Cape has suffered several "Black Outs" due to operational and maintenance problems experienced at Koeberg and through the distribution infrastructure. In a province in which the majority of energy requirements are met by predominantly two sources, Koeberg and through the national distribution network, downtime in either of these sources has a major impact on the socio-economic activity.

ELECTRICITY DEMAND

According to the NER, the total electricity consumption for the Western Cape in 2003 was 19177GWh and it has a projected growth of 2-3% per annum, although the Provincial growth target is more in region of 6% per annum. However, this projection does not take into consideration proposed industrial development along the West Coast at Saldanha based around a proposed oil rig construction plant. This development, along with others, will result in the projected generation capacity having to be increased.

The figure below provides a graphical representation of the electricity distribution industry in the Western Cape as indicated by Eskom.

The graph above shows that there is an annual increase in electricity distribution in the province. This annual increase is indicative of a rise in energy demand and the additional need for alternative resources to provide security of supply.

The DME Provincial Energy Balances for 2000 were used as a first-pass approximation of the macro-energy situation in the province at present. It must also be noted that the DME has not released provincial energy balances since 2000, but the data nevertheless provides an indication of what the energy requirement is in the various sectors of the Western Cape.

Source: DME, 2000

ELECTRICITY SUPPLY

Electricity is currently supplied from a number of sources, as summarised in the table below.

The total electricity requirement is further supplemented to fulfil the requirement of approximately 4000 MW through four transmission lines that bring electricity down from the coal stations in the north east to the "Western Grid" (Western, Eastern and Northern Cape, and Namibia). A further issue is the loss of electricity incurred through the long distance distribution from Mpumalanga which is estimated to be between 8 and 20%.

The Western Cape is fortunately in the position that it has access to significant natural renewable energy sources, such as solar, wind and wave. Further developments and research into bio-fuels is also proving to be promising.

Although renewable energies are an important component of generation capacity it will not be sufficient to supplement the base load requirement and at best will serve as a top-up source.

In order to supplement the base-load capacity in the Province there are two serious possible sources. These are Natural Gas and possible further developments in Nuclear energies such as the Pebble Bed Modular Reactor (PBMR) project.

Currently two projects are under way to develop Natural Gas power stations in the Western Cape, each of which will contribute an additional 300-400MW off electricity to the Province. These projects include the mooted Natural Gas Power station in Saldanha and the Eskom Atlantis power station which will generate some 588 MW using liquid fuel, such as kerosene or gas.

Further Eskom projects are planned for Atlantis and the Mossel Bay area where a proposed initial plant will generate about 440 MW and will also use liquid fuel.

Forest Oil International and PetroSA who have been exploring off the West Coast since 1998 are now in the process of submitting their application for a production right to the Petroleum Agency South Africa. Given that Provincial and National Government and regulatory approval is obtained timeously and that there is sufficient support for the project, the gas development could see sufficient natural gas for a minimum of 450 MW capacity for CT and environs within 18 months to 2 years. Further generation capacity in the Western Cape could come on stream in a further 2 - 3 years. Provincial Government is in the process of initiating a BEE PPP IPP to attempt to provide the guaranteed medium - term Purchase Agreement which the investors need to proceed with the construction of a pipeline.

Although the PBMR offers the possibility of adding additional generation capacity in modular form when required, further nuclear developments and exposure will be a serious alternative only after rigorous public debate. The commercial potential of a PBMR project could be realised by 2013. This does not address the immediate requirement. This project could be considered as a substitute for Koeberg generation capacity when the nuclear station reaches the end of its life span.

Various renewable energy pilot projects are also underway in the province:

• Wind energy

• 5.4 MW project at DARLlPP underway
• 20MW project planned for Saldanha energy and 1.2 MW for Beaufort West Municipality

• Wave energy

• Pilot project underway at Saldanha as well.

The Western Cape Provincial Government has launched various initiatives to address the concerns relating to sustainable and responsible energy provision to cater for the growing demand in the province and to support the growth targets.

These initiatives include:

• A sector study, investigating the growth and employment opportunities in the energy :;ector published in 2005 by the Department of Economic Development and Tourism.

• Development of an integrated energy strategy for the Western Cape launched by the Department of Environmental Affairs and Development Planning [DEADP[. This strategy is nearly completed and consultation with stakeholders will commence during February before finalisation and submission.

• The initiative to launch a PPP IPP referred to above.

• A Spatial development plan which identified the required energy to sustain the population development and economic growth in the Western Cape. This will also be made available in Q1 2006.

• The provincial government is also in the process of establishing an intra-departmental energy task team to coordinate and inform activities relating to energy related initiatives within provincial and local government within the Western Cape. It will also be the mandate of this task team to interact with the DME and Eskom on a national level to represent and discuss matters pertinent to the Western Cape's energy requirements.

The various studies and strategies have identified that a more mature or "smart" approach to energy management should be followed, implying that not only should additional generation capacity be pursued but more focus and motivations should also be placed on energy efficiency and conservation.

Apart from the initiatives in gas turbine generation and the possibilities offered by PBMR projects, a renewable energy contribution target of 15% has been identified as a realistic benchmark for renewable energies to contribute to the total energy balance in the province. The use and installations of Solar Water Heaters could form a major component of this allocation. The City of Cape Town is in a process of passing a By-law to promote the Solar Water Heating industry.

In order to promote the acceptance and ability to achieve this target it is important to create the right environment to sustain the development of these industries to support the alternative energy sector. There are various international investors interested in supporting the development in these areas, such Indian and Swedish investors interested in the wind turbine industry and British investors interested in the wave technology projects. Internationally, countries such as Israel, various states in the US and Malta have had successes by employing incentives for the use of renewable energy technologies such as solar water heaters. Policies such as those and others forms such as rebates and tax incentives could be a motivator for foreign and local investors to get momentum behind the development of these industries.

In order to facilitate the economic viability of Photovoltaics, provision needs to be made for surplus generation

to be "sold" into the national grid.

Energy efficiency targets ranging between 18 and 25% have been mooted for the Western Cape in order to create a more sustainable energy environment.

Pilot projects in the B&B market in the Western Cape have proved that savings of between 18 and 20% through responsible energy usage are possible. Currently these pilot projects are being extended to include the development of guidelines for developers and public buildings to pursue the implementation of "green" environmentally friendly buildings.

National Cabinet has supported policies which endorse gas being used in the mix of sources for the generation of electricity. It has also set the requirement for the private provision of our electricity generation capacity at 30 percent in the medium term. According to the Department of Minerals & Energy [DME], this amounts to a private provision requirement of a minimum of 6000 MW of new capacity by 2020.

However, there are significant barriers to entry by private players. Our contention is that, as the overwhelmingly dominant player in the electricity supply business, Eskom needs to be much more pro-active in making it possible for:

• new players to enter the market and
• for new energy sources to be included in the power generation mix.

We believe that this will not only assist in giving effect to Cabinet's resolutions but could also help to relieve the current crisis by bringing new power generation capacity on stream far earlier than if these processes were left entirely in the hands. of private players.

ESKOM could also play an important part in economic development in the way in which it selects and sources energy sources for the generation of electricity.

This is demonstrated by recent experience in the Western Cape. The Provincial Government regards the bringing on-shore of gas located off our west coast as critical for two reasons:

• First, it will lay the basis for the development of important electricity intensive and downstream petro-chemical industries. This, in turn will lay the basis for several smaller businesses to enter the economy, especially black-owned businesses. Naturally, this would be an important generator of accelerated growth in the Province.

• Second, it could be the basis upon which several gas-driven independent power producers [IPP] could be established, addressing the issues related to cost, reliability and long-term security of electricity supply, and also the Kyoto Protocol.

At this point, Forest Oil and PetroSA have indicated to the Provincial Government of the Western Cape that they are ready to bring our domestic gas on-shore. What they require to proceed is at least one medium-term Gas Purchase Agreement to justify the further investment of about R1.5-billion they are prepared to make [over the R65D-million already invested in exploration] to build a pipeline and deliver their gas to Saldanha Bay.

If Eskom's Atlantis plant were to guarantee the purchase of the relatively small volume of West Coast gas required to justify the investment, the investors would proceed to build the pipeline immediately. That would speed up the bringing of gas onshore by at least three years.

This would immediately be the stimulus for the development of several lPPs. This, in turn, will speed up the establishment of more power-generation capacity in the Western Cape. This, in turn, will go a long way to reducing the possibility of the reoccurrence of the present problems.

Furthermore, it is our contention that gas should be favoured over the environmentally less friendly and more expensive kerosene which Eskom reportedly intends to use to fire its Atlantis plant. We also, naturally, favour domestic sources of gas over more expensive imported gas.

We are also concerned that Eskom's reported plans for several more power plants in the Province will effectively crowd out initiatives by IPPs, particularly BEE initiatives.

Our recommendation is that Eskom be urged to engage seriously with the Provincial Government to explore the role it could play to unlock the economic potential of our offshore gas reserves and, in this way, help accelerate growth and improve its own bottom line.

The concerns of business extend beyond the immediate. Investors want cheap and reliable electricity and the assurance of the Government that there will be a reliable supply over the 3D-year to 50-year lifespan of their investments in plant and buildings. As a factor in the location of new manufacturing plants by international investors, these requirements have been given considerably greater prominence given the projected cost of oil and the Kyoto Protocol.

The problem of reliability of supply, therefore, is critical to our endeavours to attract investment, the lifeblood of any rapidly growing economy.

In this light we recommend that we not take a crisis-management approach but use the current situation as a basis of accelerating the development and implementation of a number of integrated and aligned short, medium and long-term strategies simultaneously. As can be seen from the above example, the strategies of Eskom and Provincial Government are not aligned at present, resulting in the loss or delay of opportunity for the provincial economy.

Some initial proposals are offered below.